Own Air Canada (TSX:AC) Stock? You Should Know This

This news might be surprising for many investors who have been holding Air Canada (TSX:AC) stock for years, despite knowing the immense financial challenges the company is facing and will likely continue facing in the near term.

| More on:
Airport and plane

Image source: Getty Images

Air Canada (TSX:AC), the largest Canadian airline, has seen immensely challenging times in the last year. Its investors might not be able to forget how the stock lost 68% of its value in the first quarter last year. As the COVID-19-related shutdowns and travel restrictions badly hurt its overall financials, the company’s top management apparently continued to enjoy bonuses.

This news might be surprising for many investors who have been holding Air Canada stock for years. Such investors chose to hold the stock despite knowing the immense financial challenges the company has been facing lately and will likely continue facing in the near term. Let’s take a closer look.

Air Canada’s top management and big bonuses

In its recent management information circular dated May 28, Air Canada revealed how it approved a COVID-19 pandemic mitigation bonus of $20 million. Nearly $10 million of the total $20 million approved bonus money was awarded to a handful of its top executives, including former CEO Calin Rovinescu.

Notably, Rovinescu retired from the Air Canada CEO position in February 2021. The airline said that these executives “…were instrumental in the survival of the company during the COVID-19 pandemic.”

Can Air Canada justify these bonuses?

Air Canada seemingly justified the bonus decision, saying, “We believe we must retain and motivate our senior leaders to help Air Canada recover as quickly as possible, and you will see some compensation decisions to support those goals.”

However, I don’t really buy this argument for two reasons. First, it’s the basic duty of these already well-paid top executives to find ways to help the airline recover as quickly as possible. And second, I don’t think Air Canada’s top leadership team did a phenomenal job in helping the company during the COVID period. It becomes even more evident when we look at the recent trends in its financials. Investors were expecting the airline’s financials to start improving in 2021. In contrast, Air Canada reported an adjusted net loss of $1.25 billion in Q1 2021 – even higher than $1.21 billion net losses in the previous quarter.

We must not forget that it’s the same airline that cut thousands of jobs last year when it started facing the heat of the pandemic-driven restrictions. In its Q3 2020 earnings report, Air Canada mentioned that it “…took the painful steps of eliminating 20,000 jobs.” Also, it’s the same airline company that last year received over half a $1 billion under the Canada Emergency Wage Subsidy (CEWS) program to pay salaries to its employees.

Paying millions of dollars in bonuses to its top leaders at a time when it’s burning cash, cutting other jobs, and using public money to pay salaries doesn’t sound like part of a great financial recovery plan to me.

Should investors care?

The Canadian government has already provided Air Canada access of up to $5.9 billion in liquidity to help the ailing company recover fast from the pandemic-driven difficulties. However, its overall recovery still highly depends on the way its management utilizes these funds and the travel demand — which continues to be very low.

At the moment, investors may want Air Canada to focus on implementing its financial recovery plan rather than paying big bonuses to its top leader for doing their basic duties during the ongoing extremely difficult period.

Given all these factors and uncertainties about Air Canada’s near-term recovery, I would prefer to invest my hard-earned money in other growth stocks amid the ongoing market rally instead.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Jitendra Parashar has no position in any of the stocks mentioned.

More on Investing

A person builds a rock tower on a beach.
Dividend Stocks

CPP Pension: Boost Your Payouts by $5,232 per Year

You can raise your after-tax CPP by making RRSP contributions. Alimentation Couche-Tard (TSX:ATD) is a good RRSP stock.

Read more »

Overhead shot of young adults using technology at a table
Tech Stocks

1 Stock That’s Just as Hot as Tesla Stock  (Without All the Hype)

Sure, Tesla stock (NASDAQ:TSLA) has the headlines, but this other stock has far more growth, with even more on the…

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

3 No-Brainer Stocks to Buy With $20 Right Now

Here are three no-brainer stocks that are suitable for anyone getting started on their investing journey.

Read more »

thinking
Bank Stocks

Could Royal Bank Stock Reach $200?

Growing rate cut hopes and improving analysts’ expectations from Royal Bank’s financial results could help its stock maintain strong upward…

Read more »

A plant grows from coins.
Investing

3 Growth Stocks to Buy With $3,000 for the Next 3 Years

These growth stocks have the potential to deliver above-average returns and compound investors’ wealth.

Read more »

Young woman sat at laptop by a window
Investing

Here’s Why I Think Restaurant Brands Is 1 of the Best Bets on the TSX Today 

Here's why Restaurant Brands (TSX:QSR) could be one of the best stocks to buy for long-term upside in this current…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

This 5% Dividend Stock Pays Cash Every Month

This monthly dividend stock offers cash every month, but also returns that continue to climb higher from being in a…

Read more »

growing plant shoots on stacked coins
Dividend Stocks

3 Top Dividend Stocks That Keep Raising Their Payouts

These three TSX stocks are ideal buy as they consistently raise their payouts, depicting their healthy financials.

Read more »